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AAI Issues Statement on Opinion in Tunney Act Proceeding in CVS-Aetna Merger

The American Antitrust Institute (AAI) issued the following statement on U.S. District Court Judge Richard Leon’s opinion in the Tunney Act proceeding in the merger of CVS Health Corporation and Aetna Inc. Although the opinion highlighted the important role played by amici and gave credence to concerns raised by advocacy organizations and consumer groups, it ultimately sided with the government and the merging parties.

AAI President Diana Moss noted of the outcome, “The merger of two of the largest pharmacy benefit managers and health insurers will undoubtedly have significant adverse effects on the prices of, and access to, drugs needed by millions of consumers. The AAI will be watching closely to see how the strategies and conduct of this behemoth company unfold.”

The opinion likely closes the case on the long-contested and controversial combination that raises significant horizontal and vertical competitive concerns. AAI was the first to issue a letter to the U.S. Department of Justice (DOJ) in March 2018 urging the agency to scrutinize the incentives of a combined CVS-Aetna to foreclose rivals in retail pharmacy, PBM, and health insurer markets. Moss testified in the Tunney Act hearing on behalf of Consumer Action and U.S. PIRG, alongside witnesses for the American Medical Association and the AIDS Healthcare Foundation.

The court’s opinion accepts a proposed final judgment that contains a remedy to address horizontal overlaps in CVS’s and Aetna’s Medicare Part D prescription drug plans (PDPs) with a divestiture to WellCare Health Plans. It also accepts the government’s and CVS’s arguments as to why the merger raises no (vertical) concerns about CVS-Aetna’s stronger post-merger incentives to exclude its rivals.

“AAI strongly disagrees with the merits of the court’s opinion,” said Moss. “On most points, the court simply accepted piecemeal evidence introduced by the DOJ and CVS. The opinion discounts the showing by amici that the remedy will fail to preserve competition in PDP markets and that the merger raises significant vertical concerns ignored by the DOJ in its complaint. The opinion’s statement that ‘[N]otwithstanding CVS’s significant market share, the evidence showed that CVS must compete vigorously to retain its PBM customers’ is divorced from sound economics.”

Apart from the merits of the decision, the court’s opinion has important implications for the standard of judicial review in future Tunney Act proceedings. The court accepted AAI’s argument in comments submitted during the Tunney Act review period that courts are permitted to look beyond the claims alleged in the complaint for purposes of determining whether a settlement is in the public interest.

The DOJ argued that courts are limited to reviewing the proposed remedy in relationship to the violations alleged in the complaint. But AAI contended that analysis of harms outside the scope of the complaint can inform the court’s determination of whether a complaint is drafted so narrowly that approval would make a mockery of judicial power. The court agreed with AAI that such evidence is relevant to the court’s public interest determination. The opinion also noted that harms outside the scope of the complaint can be relevant to whether the proposed settlement may be problematic to implement or risk causing injury to third parties.

The opinion encourages courts in future Tunney Act proceedings to insist on greater transparency from the government, particularly to explain why the government has chosen to ignore theories of competitive harm when it drafts complaints in conjunction with proposed settlements.

“The opinion sends a clear message to the DOJ to take the transparency goals of the Tunney Act more seriously,” said AAI’s Vice President of Legal Advocacy, Randy Stutz. “That means giving fulsome explanations when the future victims of potential anticompetitive mergers believe merger settlements do not go far enough in protecting the public,” Stutz added.

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Wall Street Journal Covers AAI Testimony in CVS-Aetna Deal

AAI President Diana Moss testified on June 4 during two days of rare federal district court hearings under the Antitrust Procedures and Penalties Act (Tunney Act).

The Wall Street Journal’s June 6 article “Federal Judge Wraps Up Hearings Into CVS-Aetna Deal” covered AAI testimony on behalf of consumer groups and other parties who have have vigorously opposed the merger that combines behemoth retail pharmacy and pharmacy benefit (PBM) manager, CVS, with one of the largest health insurers, Aetna.

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AAI Testifies on Behalf of Consumer Groups at Rare Tunney Act Hearing on Proposed Merger of CVS and Aetna

AAI President Dr. Diana Moss testified in federal district court in a rare hearing under the Antitrust Procedures and Penalties Act (Tunney Act). AAI, consumer groups, and other parties have vigorously opposed the merger that combines behemoth retail pharmacy and pharmacy benefit (PBM) manager, CVS, with one of the largest health insurers, Aetna.

Judge Richard Leon is presiding over United States v. CVS Health Corp., and Aetna, Inc. (Case No. 1:18-cv-02340-RJL) in the U.S. District Court for the District of Columbia. He took the unusual but critical step of holding a hearing to help determine whether the government’s proposed consent decree, which requires the single divestiture of Aetna’s prescription drug plan (PDP) assets, is in the public interest. Moss was selected as a witness from a larger group of experts put forward by amici in the Tunney Act proceeding. She testified on behalf of U.S. PIRG and Consumer Action.

AAI and other groups have expressed concern that the proposed divestiture of Aetna’s PDP assets will be ineffective in ameliorating the competitive harm alleged in the government’s complaint — putting competition and consumers at risk. The U.S. Department of Justice has already allowed the companies to sell Aetna’s PDP assets to WellCare Health, a much smaller rival with limited ability and track record to fully restore competition lost by the merger.

AAI expressed concern as early as March 2018 that the merger will enhance incentives for the merged company to constrain competition in insurer markets and retail pharmacy and PBM markets by raising rivals’ costs or cutting them off from important inputs or customers. The government’s complaint does not address those important issues. In her testimony, Moss provided analysis and perspective that could aid the court in rendering a decision on whether the proposed settlement is in the public interest.

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Columbus Dispatch Seeks AAI Comment on Aetna-CVS Whistleblower Case

In the May 6 article “Aetna bid to derail whistleblower case against CVS denied,” The Columbus Dispatch quoted AAI President Diana Moss:

Diana Moss, president of the American Antitrust Institute, said she couldn’t comment on the specifics of Behnke’s whistleblower case, but she said in general that the interests of CVS and Aetna can be discerned.

“I think it is safe to say that the companies at this juncture have incentives to downplay any legal issues that arise between them, given the pendancy of their vertical merger,” Moss said in an email.

See more of AAI’s analysis of the CVS-Aetna merger.

 

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Washington Post Columnist Cites AAI Objections to CVS-Aetna Merger

In an article criticizing the Justice Department’s failure to block the CVS-Aetna merger, Washington Post columnist Steven Pearlstein cited AAI’s December 2018 Tunney Act comments critical of the DOJ settlement allowing the deal to go forward. AAI’s letter to the DOJ making the case for blocking the deal appeared in March 2018.  Among other things, Pearlstein points to the conduct of CVS and other PBMs to raise drug prices through opaque rebates (which HHS now seeks to ban) as indicative of the competitive problems in the industry that the merger can only exacerbate.

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AAI Asks DOJ to Explain Its Approval of CVS-Aetna Merger

On December 17, AAI filed Tunney Act comments with the Antitrust Division of the U.S. Department of Justice requesting that the Division explain its decision to accept a consent decree in the CVS-Aetna merger that addresses the horizontal but not the vertical anticompetitive effects threatened by the transaction.

On October 10, the Antitrust Division approved the merger of CVS and Aetna subject to a divestiture of Aetna’s Medicare Part D prescription drug plan (PDP) contracts, because CVS and Aetna had competed head-to-head in many PDP markets.  However, the consent decree does not address the risk that the combination of CVS and Aetna will create stronger incentives to foreclose rival pharmacies, pharmacy benefits managers and health insurers, raise two-level entry barriers, and lead to other exclusionary anticompetitive effects. In a letter to the Antitrust Division on March 26, 2018, AAI had set forth these risks and encouraged the Division to block the merger.

AAI’s comments renew AAI’s objections to the vertical aspects of the transaction and argue that an explanation is warranted for two reasons. First, a district court is not obliged to accept a consent decree based on a complaint that is drafted so narrowly as to make a mockery of judicial power or to approve a remedy that is too narrow in scope given the conduct alleged in the complaint.  Giving a fulsome explanation of the Division’s rationale for ignoring vertical concerns, both in PDP markets and otherwise, would assist the Court in determining whether the complaint or proposed remedy are unduly narrow. Second, the Antitrust Division itself has emphasized the importance and value of subjecting government processes and decision-making to aggressive scrutiny.  Here, transparency is not only necessary but especially valuable given the unique significance of this merger, which has attracted national media attention, has been the subject of a Congressional hearing, and implicates core aspects of human health and well being.

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AAI Says DOJ’s Approval of CVS-Aetna Merger Imperils Competition and Consumers in Critical Parts of Healthcare Supply Chain

Today, the U.S. Department of Justice (DOJ) approved the vertical merger of leading retail pharmacy and pharmacy benefits manager (PBM) CVS with major health insurer Aetna. “While the DOJ obtained divestitures to address the horizontal overlap in CVS’s and Aetna’s Medicare Part D individual prescription drug plans, it did nothing to address the significant vertical competitive problems raised by the combination,” said AAI President Diana Moss.

The approval of CVS-Aetna comes on the heels of the DOJ’s recent approval of a similar vertical merger of PBM Express Scripts and heath insurer Cigna.

“Within a short period of time, antitrust enforcers have green-lighted a fundamental restructuring of important segments of the healthcare industry in the U.S.,” said Moss. “Competition now depends almost entirely on having ‘enough’ rivalry between integrated PBM-insurers. This ‘roll-the-dice’ model of competition stands in stark contrast to a model of standalone PBMs competing hard to gain insurers’ drug plan business and insurers aggressively seeking out competitive PBM services.”

In a March 26, 2018 letter to the DOJ, AAI raised serious concerns about the competitive effects of the proposed merger. The deal creates a large, vertically integrated PBM-insurer that operates in upstream and downstream markets featuring only a few rivals. AAI also provided testimony at the California Department of Insurance hearings on the proposed merger.

“We are disappointed that the DOJ did not address a merged CVS-Aetna’s enhanced incentives to use their market positions to disadvantage rival PBMs, independent pharmacies, and rival health insurers,” said Moss. “Competition will undoubtedly suffer, as will consumers through higher prices, lower quality, less innovation, and less choice,” Moss added, noting that any efficiencies claims would have to be monumentally large to overcome significant competitive concerns. AAI says the DOJ’s decision highlights the need for new guidelines on vertical mergers.

AAI’s advocacy against the CVS-Aetna merger explains that giant PBM-insurer organizations created by the recent swath of merger approvals will make it harder for companies with more innovative business models to enter markets. Because of widespread vertical integration, new entrants will be forced to enter at both the PBM and insurer levels to be viable competitors.

“If ever there were a vertical merger that should have been challenged by antitrust enforcers, this would be it,” said Moss. High levels of concentration in the PBM and insurer markets, demonstrated exclusionary conduct by one of the merging parties, and past enforcement actions involving consolidation in these important markets are all powerful indicators that the deal should have been deemed illegal.

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AAI Calls on DOJ to Block the Merger of CVS-Aetna — Vertical Integration Will Restructure Important Healthcare Markets, to the Detriment of Competition and Consumers

In a letter to the U.S. Department of Justice, the American Antitrust Institute (AAI) called on the agency to block the proposed merger of retail pharmacy and PBM giant CVS and Big 5 health insurer Aetna. CVS-Aetna would pair up the largest retail pharmacy chain and one of the two largest PBMs with the third largest health insurer in the U.S. The proposed merger raises a number of questions for competition and consumers. The AAI letter focuses on the merger’s potential to enhance the incentive of CVS-Aetna to exclude rivals and facilitate anticompetitive coordination among health insurers served by PBM CVS-Caremark. CVS and Aetna already wield significant market power in the retail pharmacy, PBM, and health insurance markets. High concentration in these markets exacerbates competitive concerns. Market idiosyncrasies heighten the proposed merger’s potentially anticompetitive effects. These include the role of health insurers in paying for most prescriptions filled and of PBMs in managing the flow of prescription drugs to millions of Americans, and PBM markets that lack important transparency.

Together with the merger of Express Scripts-Cigna, CVS-Aetna would trigger a fundamental restructuring of the U.S. healthcare system. Stronger incentives to exclude rival PBMs and health insurers and to engage in anticompetitive coordination would harm competition and consumers at all levels. Assuming both mergers move forward, the three large integrated PBM-insurer systems (i.e., CVS-Aetna, Express Scripts-Cigna, and Optum Rx-United Healthcare) that would dominate the markets would have weak, if any, incentives to compete. This stands in stark contrast to the competition that is fostered by standalone rivals. Moreover, entry barriers would increase dramatically, scalable only by those players who could enter and compete effectively at two levels – PBM and health insurance. This would effectively lock out competition by standalone PBMs, insurers, and other market participants – competition that is badly needed to foster innovation, to protect the stability of the healthcare supply chain, and promote the welfare of the U.S. consumer.

Any of the anticompetitive effects discussed in this letter would be detrimental to consumers through potentially higher prices, lower quality, less choice, and less innovation in markets for prescription drugs and health insurance. In healthcare, these effects can make the difference between wellness or disease, and life or death. CVS-Aetna should face a high hurdle in explaining how any claimed efficiencies assuage the significant competitive concerns that pervade their merger. Such efficiencies would have to be achievable only through merger; demonstrated in post-merger operations; passed through to consumers in the form of lower prices; and sufficiently large to offset substantial potential competitive harms. This is a tall order – one that CVS-Aetna cannot fulfill. Moreover, there is little evidence that past vertical acquisitions by CVS, including its acquisition of Caremark, have resulted in significant benefits and have even harmed consumers and independent pharmacies. In light of all of this, the only effective remedy is for the government to move to block the proposed merger.